The chart has the Manufacturing (Future Output) Index of PMI, a measure of business sentiment among manufacturers, and the Services (Business Expectation) Index, a yardstick of sentiment among service providers. Graphic by Naveen Kumar Saini/Mint

The Nikkei India Purchasing Managers’ Index (PMI) for October 2017 shows an improvement in the services sector, but business optimism remains muted. Consider the above chart, which has the Manufacturing (Future Output) Index of PMI, a measure of business sentiment among manufacturers and the Services (Business Expectation) Index, a yardstick of sentiment among service providers.

In October 2017, business confidence among manufacturers was the lowest since February this year, while that for services firms was the least since June.

The survey says that for the manufacturing sector, “Business confidence regarding the prospects for output growth over the next 12 months eased to the weakest since February…Optimism was linked by panellists to expectations of GST (goods and services tax) benefits being realised. Pessimistic projections were firmly rooted in forecasts of negative impacts of GST.” In the services sector, while sentiment weakened, “more than 16% of panellists expected greater activity, which they widely linked to projected longer-term benefits of GST”.

Simply put, business confidence currently is linked to the view businessmen have of the impact of GST. Note that the PMI survey is of the largest firms in the private sector and small firms don’t find a place.

Sentiment should improve as the GST disruption eases, but the chart should serve as a reminder of the distance to be travelled before business confidence returns to the high levels last seen in 2012.